Now, on my channel, I always teach you how to make more moneyand how to create wealth, and one of the things thatmost people don't think about, or they overlook, it's their credit score, and today, I have Matthewwith me from VIPFinancialEd, right, his channel, we'redoing some collaboration.
I thought, you know, Matt, why don't I just kinda pick your brain and share with my audience alittle bit about how to build that perfect credit score,and also, why is it important? So I think most of us beginto realize the significance of credit and creditscoring early into college and after college becausemost of us go onto campuses and we're inundated with these offers, and we have no idea how our credit works and our social securitynumber, it follows us around.
And my personal story was the same.
I got a Discover card.
To me, it felt like free money.
(Dan laughing)I maxed it out in the first 30 days.
$1,000, I'm thinking, okay,maybe if I move enough, they'll never find me.
They just kept followingme around magically.
Shortly thereafter, I had theopportunity to hire a mentor.
I got involved in thereal estate business, started a wholesaleresidential mortgage company, and began to see thetie-ins between credit and how the rest of your life is gonna go.
If you are not concentratingon what they consider to be your life's financialreport card, then guess what? You are gonna pay the consequences, and you will pay dearly inactual dollars and cents, folks.
So if you care about money, you should care about your credit.
And what we talk abouton our channel, Dan, is the concept of other people's money.
We like to think of ourselvesas the perfect blend between the Robert Kiyosaki ideas of leveraging money to create wealth, while also treating debt as if it is a cancerous danger, it is.
It's the blend between Dave Ramsey– It's a two-edged sword,I always talk about.
It is, exactly.
So we look at it as a tool that when used well and correctly, it's gonna work really,really well for you, and when it's used incorrectly, it will be a tremendous danger.
Credit is something that, since that time, I cared a lot about, and I was presented with the opportunity to hire a mentor, one of the original pioneersof the credit industry, the original FICO credit score.
FICO is the Fair Isaac Corporation.
Fair Isaac Company hascreated this algorithm that takes all the datafrom your payment histories, and it processes itinto this magical score.
The highest score you canget is an 850, and so– That's the perfect score.
That's the perfect credit score, right.
And it's said that about a million people, according to Fair Isaac,have an 850 credit score.
Mine, right now, is 820, 830.
The way that you developreally, really excellent credit quickly is by understandingthe different elements that go into the credit scores.
I've been considered one ofthe foremost leading experts on the subject of credit, and we have managed to dovetail that into a tremendous amount of assets, and credit has sincebecome a very small spoke in a much bigger wheel.
When we first started, wewere out teaching on credit.
That was really our main– But the credit, it's a mean to an end.
That's exactly right.
It's a tool.
We started realizing that, once I hit 25 years old, I started seeing how credit influencedall these other things, and those other thingswere much more valuable, I just needed the tool toget to those other things.
So that's what we focuson our channel about.
So I wanna leave you guys with a couple of really cool techniques that you'll never hear about in school, your parents aren't gonna know about this, your friends aren't gonna know about this, so make sure you share thisvideo with everybody you know.
The first technique thatis extremely popular on my channel is talking about a strategy that was expected to goaway a long time ago, known as piggybacking, or theauthorized user technique.
It's one of the fastest waysto skyrocket your score.
I've seen more people get100-point credit scoring increases from this one technique,or even more than that, within 30 to 60 days.
So the very first thingyou wanna do is find out whether or not you have afriend or a family member that is willing to lookinto this tactic with you and understands that theydon't have any risk, okay? So the primary account holder, being your friend or relativethat owns an account, has to be willing to add me on their account as an authorized user.
Now, if I'm added as an authorized user, within that next reporting cycle, which usually happens 45 days or less, I will immediatelyadopt the entire history of that one credit card account.
So if your friend or relative has, say, 10 years of history of on-timepayments on this account, I will suddenly receiveon my credit report 10 years worth of on-timehistory on that account.
Now, there are some very key pieces of cautionary informationyou're gonna have to consider before you do this.
Number one, the primary account holder has to be paying that account on time.
Don't sign up as anauthorized user on an account that has any past-duepayments, any delinquencies, or if they're in default, you'regonna adopt the negative– That's not good.
Just as easily as you would adopt the positive.
That also means that you wanna make sure that the utilization ratio is very low.
I like to look for accounts that have at least a $5,000 credit limit.
Okay, so $5,000 available, and any time they are spending above zero, and the closer it gets to $5,000, the more that will negatively impact you.
That is worth 30% of youroverall credit score.
So how much you're borrowing compared to what's available to you is worth 30% of your score.
What's surprising to most people, Dan, is that paying your bills ontime is only valued at 35%.
So it's worth almost asmuch to your credit score to keep your balancescompared to your limits as low as possible.
So make sure that if you're being added as an authorized user thatthe primary account holder keeps a low balance, preferablythey're paying it off in full every single month.
Finally, you wanna make sure that this person is understanding that they can remove you at any time.
So this is not a permanentcosigner, co-borrower situation.
So unlike actually going on the account where you can never be removed until the account is paid for and closed– There's no risk for them.
No risk at all.
Within a five-minuteconversation, you can be added, and within a five-minuteconversation, you can be removed.
Here's the downside.
Not every creditor isgonna allow this to happen.
So not every credit cardprovider actually will recognize authorized users and reportto the credit bureaus.
So just because you'readded as an authorized user, you have to ensure thatthey're actually gonna hold you liable for that balance if there is one, and the liability, whileit sounds like a risk, isn't if you're dealing witha primary account holder who manages their moneyreally, really well.
So if they're managing their money well and they report to the credit bureaus, then it's a win-win, andyou can adopt the history.
If they don't get yoursocial security number, it's a sign that you're not liable.
So that's a good indicator,you can also just flat-out ask.
So, again, this is usually based on a quick five-minute conference call, primary account holderand you are on the phone, call the creditor and ask to be added, will I be liable for this account, do you need my social security number, et cetera, et cetera, okay? So very good technique, you'll see your scoresskyrocket within 100, within 30 days, and it couldbe as much as 100 points.
Now, I don't recommend thisas a permanent strategy.
This is a stepping stone toget into your own credit.
So if you're just tryingto build your credit up, this is a great way toget to a better score so you can apply for yourown credit card accounts and then get removed fromthat person's credit account.
I love it.
Second technique is pay before the statementclosing deadline, folks.
I talked about the utilization ratio, also known as debt-to-available ratio, not to be confused withdebt-to-income ratio, which we hear about all the time, it's used in underwriting to determine if you're a good borrower.
Debt-to-available is determined by the credit-scoring algorithm as how much you're borrowing compared to what's available to you.
If we know that that'sworth 30% of your score, then we wanna manipulate thesystem as much as possible.
What most people don't knowis that credit card companies or other creditors willgenerally report once per month, but they report on or aroundthe statement closing deadline.
The statement closing deadline is not the same thing as your due date.
The statement closingdeadline is the last day that transactions are addedto your monthly invoice before they cut the invoice, and it's the last day thattransactions are added, and they send you the bill, and the bill is due a couple weeks later.
So you're spending, spending,spending, spending, spending, you have the highestbalance here, it cuts off, and then, they report to the bureaus.
So it's showing that, evenif you have a $5,000 limit and you're spending $3,000– Right, all the way up.
All the way up, $3,000, and then you payit to zero every month, what's reporting? $3,000, not zero.
$3,000's reporting,$3,000'sa 60% utilization.
60% utilization is considered very harmful to your credit report.
Now, a lot of people haveheard the milestones, keep it below 30%, keep it below 50%, and yes, those are greatbenchmarks to focus on, but every dollar increaseto how much you're borrowing compared to what's availableis considered harmful.
Every dollar decrease of what you're borrowing is considered helpful.
So try and have it as low as possible.
I teach, and my preferenceis, to pay every single day, I pay my balances in full, and the reason I do that isbecause I'm able to go in and look at the transaction history and see and manage what I'm doing.
It takes five minutes.
I know where I've spent the money.
I have one business account,one personal account.
We keep this separate, so it'svery easy for bookkeeping.
I go into the business, pay it to zero.
Personal, pay it to zero.
So if you're just wantingto pay once per month, that's okay, but try andpay several days before the statement closing deadline,so that when they report, you have a much lowerbalance that's reporting, which will have a tremendous impact on your personal credit scores.
So guys, that's it.
I love it.
So one is a fast strategy,30, 60 days, authorized user, but one is a more long-term habit that you should have.
Every month, every month, habit, yep.
I love it.
That's how you build aperfect credit score.
Matt, I appreciate it.
Make sure, check out Matt's channel.
I'm gonna put a link right here, which you have a lot of videos that goes more in depthon the various techniques.
All about creating wealth, all about creating cash flow, folks.